The Economic Harm of OWS

For a movement that professes to be protesting the dismissal state of the economy, including the lack of jobs, Occupy Wall Street (OWS) appears to believe that hampering the mechanisms of capitalism is a smart move. Yesterday, members of Occupy Portland shut down the Port of Portland, preventing any trade from proceeding. The Port of Portland is the fifth largest port (by tonnage) in the United States and is thus responsible for an enormous amount of trade and jobs, both at the port and in markets that rely upon the trade.

Why the Occupy movement thinks that stopping economic flows is an intelligent tactic is beyond comprehension. Not only would it seemingly undermine any potential support they could garner from those who do not sit on the far-left of American politics, but such strategies undermine attempts to improve the economy. It is nonsensical to prevent people from working and interrupt economic activity in this economic climate.

OWS has had pernicious effects on small businesses, particularly those located in the vicinity of the protests. Shops, for instance, have been forced to close as protesters have driven away paying customers. Other businesses have had to lay-off employees in order to stay afloat. And many banks have been forced to close their doors for fears of potential violence. None of this helps the economy or the newly minted unemployed.

But the follies of OWS do end there. There have been reports, admittedly isolated for the time being, of Occupy protesters attacking banks, stores, and other institutions of "capitalism." While not yet the mainstream of the movement, which has largely been peaceful, such violent trends are worrisome. The last thing this country needs is to descend into further turmoil.

Pro-Market versus Pro-Business

Within political arenas, there is a distinction that is far too often overlooked: pro-market vs. pro-business. Republicans, at least the fiscal conservatives, tend to call themselves pro-market. They speak in terms of supporting the market, free-trade, competition, and business. Democrats, in turn, disparage the concept of being pro-market and criticize Republicans for really being bosom buddies with Big Business.

The difference between the two concepts is often muddled, but is in reality very simple. Being pro-market is expressing a commitment to the economic principles of a free-market and competition. It represents the support of an economic system that allows Adam Smith’s “invisible hand” to perform the majority (certainly more modern economics allow for greater government interaction) of economic production and distribution. The principles accept that truly free-markets operate best with minimal government interference and maximum individual liberty.

In contrast, being pro-business is an expression of support for one type of player with the market. The interests of these players sometimes coincide with the interests of the market and sometimes do not. Rather than supporting a principle or idea, those who are pro-business are indebted to partisan interests.

As most are aware, the majority of Democrats are neither pro-market nor pro-business. Instead, generally they correctly criticize the concept of pro-business and incorrectly, although quietly, eschew the concept of pro-market. Many Democrats chose to follow policies that fit a more socialist (in the ideological not the disparaging sense of the far right) economic model. In other words, they prefer active government management of parts of the economy in terms of both production and distribution of wealth.

In contrast, Republicans often claim to be pro-market. While often successful in this pursuit, unfortunately many Republicans devolve into the realm of pro-business. This is most clearly represented when Big Business or cronies of certain senators get market-distorting tax incentives or other perks of their position (E.g. antitrust exemptions).

In truth, it is difficult for a politician to be truly pro-market. Commitment to a principle is always complicated when faced with electoral constraints. Politicians need money and voter support and thus need to give incentives, whether in the form of providing money or perks, to their supporters. This causes elected officials, who are inclined to support an ideology, to compromise their beliefs when the electoral rewards are greatest. The most committed pro-market candidate can quickly devolve into a pro-business shill when he realizes the realities of Washington.

This is true because, aside from a few academics and bloggers, the market has no real constituency. Being pro-market means that and individual must sometimes support business, sometimes support labor, sometimes support consumers, and sometimes just sit back and do nothing. Pro-market leaders will inevitably be forced to make decisions that upset either their financial or electoral supporters – a politically unwise proposition.

Despite the obvious difficulties, the pro-market framework is truly what is best for America. Being pro-market reduces the role of government to one that simply ensures that markets operate efficiently and competitively. It means that when one player, be it government, union, or company, gains too much power it is prevented from abusing its position. In practice this means supporting policies that prevent consolidation of power (anti-union and anti-monopolization) and facilitating the free flow of information.

At the end of the day this not only minimizes the size and cost of government but allows each player within the market to pursue its self-interest in a fashion that maximizes its own and societies worth. In contrast, the pro-business mentality artificially distorts the market by giving special privileges to some members of society. While potentially difficult to implement, pro-market policies should be the foundation of the Republican platform.

What Are They Thinking?!! – Socializing and Destroying Our Economy

On Friday, the House voted to give the government sweeping control over pay in the private sector. This plan continues the radical-leftist Congress’s assault on free enterprise and the capitalist system. Essentially the bill, H.R. 3269, prevents large companies from rewarding their employees in ways that may cause excessive risk taking. What excessive risks are is undefined.

Such a power grab greatly hampers the abilities of companies to structure their businesses according to what works best. While companies certainly have, and will continue, to make mistakes, there is no reason to assume that the government can make better decisions. In fact, there is much reason to believe that government interest does not coincide with what is best for a company. Governments have a whole host of groups that they must pander to; including, constituents, lobbyists, party members, and others.

Government meddling in corporate business strategy can only lead to bad situations where politics trump good business sense, sapping initiative and dampening the industrious and innovative American spirit. In such instances, the government role is inefficient, impractical, and downright foolish. It brings politics into a realm where they don’t belong. The very motivation for greater government involvement is completely imbued with political motivations. Such bills are precisely motivated by the populist rage that the Congressional Democrats are nurturing and harnessing, rather than any objective logic. Destroying the fictitious ‘fat-cat Wall Street’ apparently wins votes, even if it hurts the very Americans who cry for blood.

The damage that this bill could cause is foreshadowed by the government’s meddling in the relationship between Citigroup and one of its prime breadwinners, Andrew Hall. Hall, who runs a division of Citigroup called Phibro, which often earns a large chunk of revenue for the company, is admittedly a well compensated man (he owns a castle). He is now demanding a contractually committed bonus of $100 million. Citigroup, which received a lot of taxpayer cash through the bailout, is under immense pressure to renege.

The tensions in this are obvious. However, whether he is right or wrong, Hall, and his massive amounts of revenue, will leave Citigroup if his contract is not upheld. Citigroup is naturally in a tough position– stuck between the same populist anger that is pressuring the government and a large capital outlay that may reap future rewards. This tough decision is only complicated by the presence of government decision makers who, motivated by reasons not necessarily in line with Citigroup’s financial success, can severely influence what happens.

Proponents argue that government intervention is necessary to mitigate excessive risk taking on Wall Street. However, the excessive risk taking that this bill attempts to eradicate, is the very same excessive risk taking that Congress has helped build into the system. The financial bailout and other such programs encourage risky behavior. After all, if one knows one will not have to suffer the consequences, one will be more likely to take risks. When the suffered consequences do not match the risk level it encourages individuals to have a surplus of hazard. The bailout encourages just that.

Congress is in the process of establishing such a backwards system. If a system cushions the consequences of missteps, it simultaneously encourages missteps to be taken. Ultimately, people and institutions need to be able to feel the pinch in order to learn to avoid behavior in the future. The only alternative to eradicate risk is to have one party dictate every action– compensation, production, consumption. This is a failed political system often called communism.